Ten mistakes investors must avoid
Knowing what not to do is essential when you are trying to make money
Walking on eggshells? Here is my Top 10 list of common blunders made by investors:
This can be a dangerous attitude, particularly if your manager is rewarded on the upside (with performance fees) but has nothing to lose if your investments tank.
There is an old saying that the guys that got rich during the 1800s gold rush were the shops selling spades and jeans, not the miners. And the investment industry is no different. The wealth driving up home prices in Greenwich was not generated from investing in hedge and private equity funds - it was from offering investments in hedge funds and private equity funds. With other people's money (see item 1), the sky is the limit.
The idea that investors and traders have an edge in the global markets should be put to rest by the sheer number of dead macro hedge funds, which were presumed to have a direct telephone line into the world's central banks. But if such funds had such an edge, we would have seen a lot of hedge fund managers passing old-fashioned investors such as Warren Buffett in the Forbes' rich list. So far, none have.
There is a caveat - the more inefficient an investment (for example, private equity, non-core real estate, small-cap stocks, and so on), the more likely that someone might have an edge, although it might be difficult to work out who that is. Most likely, it is not you.
Much has been said on this point. Suffice to say, it is futile.
The best way to illustrate this point is to watch an NBA basketball game, note when a player makes an amazing basket, and then see how often right after that great play that same player fails to get back on defence and the other team immediately scores an easy basket.